Standard life is a United Kingdom-based insurance company and was originally incorporated in 1825 and is headquartered in Edinburgh, Scotland, UK. It has grown through mergers and first merged with Aberdeen Asset Management in March 2017 and later became a part of combined business with Phoenix Group, an American life insurance provider.
Standard life has been delivering services for nearly 200 years and has vast experience and customer base. It has been listed on London Stock Exchange since 2006 (Standard life, 2021). The Company deals with a variety of Pensions, Bonds and Retirement options to suit your needs, as well as other ways to invest and save for the future. We’re proud to offer a leading range of sustainable and responsible investment options. Porter’s five forces model is a valuable tool to identify threats and opportunities faced by Standard Life.
Competitive Rivalry in the Market
The financial services industry is highly competitive, and the same is the case with the United Kingdom’s insurance sector. Many mega financial services companies are operating in the industry. The major competitors of the company are Royal London, Aegon and Lloyd’s. In 2020, Standard life reported $2.2 billion in revenues and $1.1 billion in profit, and the company has a market capitalization of $10.3 billion (Forbes, 2021).
In the same financial years, Royal London has reported £6.4 billion in revenue and a net profit of £80 million, and it has £148 billion of assets under management (Royal London, 2021). In 2020, Aegon reported $75 billion in revenues and $1.3 billion in profits with a year on year change of 65.5%, and the company is ranked 124 in the Fortune Global 500 companies (Fortune, 2021). Lloyd’s has reported a Gross income of £35.5bn, and the company has paid claims worth £21.4bn, the company incurred a loss due to pandemic (Lloyds, 2021). Therefore, the market is highly competitive.
Threat of Substitutes
The risk of substitution remains moderate in the financial services industry. The financial services industry faces the challenge from the digital companies using technology to compete for the business. Insurtech companies are trying to break into the market in the insurance sector by leveraging technological progress and its availability.
They are pushing the standard of personalized services and giving a hard time to the incumbent companies to retain customers. Like banking, insurtech companies target retail clients, and 75% of startups target them (PWC, 2019). However, the traditional banking companies face growing pressure from the startups; they respond to the threat by making strategic acquisitions and strengthening research and development departments to enable generic growth. The threat of substitutes is moderate in the short term.
Threat of New Entrants
The threat of new entrants is low to moderate in the industry. There are industry-related limitations associated with the insurance sector. A newcomer’s major hindrances are the high capital requirement, stringent regulatory framework, and competitive market. The market is highly capital intensive, and continuous inflows of high capital are required.
Due to available financing options, the proliferation of capital in the technology sector has solved that problem. Insurtech startups have drawn around $17 Billion in investment in the last decade (Deloitte, 2019). However, there is a massive potential for growth but established incumbents hold major market share, and it’s difficult to break through for a new company. Lastly, the industry is overregulated due to preventing shock to the system at large due to misconduct; this increases the compliance cost. Therefore, the threat of new entrants is moderate.
Bargaining Power of Buyers
Buyers can exercise moderate bargaining power. Buyers’ power depends on the associated factors such as their concentration, switching cost, brand loyalty and availability of alternatives. Usually, individual buyers do not have much sway over the business; however, in the new insurtech landscape, these companies target retail clients, having more options to choose from has substantially increased their bargaining power.
The insurance market is highly competitive, and therefore buyers can bargain for better services. Shen (2000) reports that such growth in product lines and increased market competition among insurers has improved insurance services to commercial (and private) consumers. There is mild brand loyalty in the industry, and therefore, despite having no switching cost, consumers stick to their existing service provider. Therefore, the bargaining power of buyers is strongly moderate.
Bargaining Power of Suppliers
In the insurance industry and financial services sector suppliers have moderate bargaining power. Suppliers’ power is directly proportional to the suppliers’ concentration, the importance of supplies for the business, forward integration risk, and nature of supplies. The risk of forward integration remains low in the industry because funds providers cannot easily move into the insurance business despite having the funds to move into the sector.
The important inflows in the insurance industry are premiums from private consumers, corporate clients’ premiums, and expert human resources. Individual customers cannot affect the business on their own and thus lacks the bargaining power. Reliance on multiple sources of inflows reduces the company’s supply chain risk. On the other side, corporate clients are immensely important as they bring business by giving them, significant clients. In return, they leverage their position and require better premiums.
Lastly, human experts, actuaries, are the specialist skilled people and are in scarcity; they are extremely important for the business and thus commend higher bargaining power. When suppliers are in concentration, they can bargain higher buying power (Lin et al., 2020). Therefore, suppliers hold moderate bargaining power
References
Deloitte. (2019). Accelerating insurance innovation in the age of InsurTech. Available at: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/us-accelerating-insurance-innovation.pdf
Forbes. (2021). Standard Life. Available at: https://www.forbes.com/companies/standard-life/?sh=4befaad91ba8
Fortune. (2021). Aegon. Available at: https://fortune.com/company/aegon/global500/
Lin, Y., Xue, B., & Wang, C. (2020). Concentration and diversification: components suppliers’ strategy in utilising external knowledge. Innovation, 1-18
Lloyds. (2021). Annual Results 2020. Available at: https://www.lloyds.com/about-lloyds/investor-relations/financial-performance/financial-results/annual-results-2020
PWC. ( 2019). The untapped potential within the UK insurance market. Available at: https://www.pwc.co.uk/financial-services/assets/pdf/insurtech-the-untapped-potential-within-uk-insurance-market-pwc-report.pdf
Royal London. (2021). 2020 Annual Reports. Available at: https://www.royallondon.com/siteassets/site-docs/about-us/2020-annual-report-and-accounts.pdf
Shen, Yiming. (2000). China’s Insurance Market: Opportunity, Competition and Market Trends. The Geneva Papers on Risk and Insurance – Issues and Practice. 25. 335-355. 10.1111/1468-0440.00069.
Standard life. (2021). About. Our Story. Available at: https://www.standardlife.co.uk/about/our-story